SALE LEASEBACK – CREATING CASH AND A GREAT RATE OF RETURN
UM/ULI Real Estate Forum Presentation
Robert J. Pliska, CRE, CPA
www.propinvadv.com; robert.pliska@svn.com
Sale Leaseback – a financial transaction where one sells an asset and leases it back for the long-term; therefore, one continues to be able to use the asset but no longer owns it. The transaction is generally done for fixed assets, notably real estate. Leaseback arrangements are usually employed because they confer financing, accounting and/or taxation benefits.
Seller Considerations and Advantages:
1) Use of unlocked capital to get a higher return on money employed, expand the business, buy out partners, purchase other companies, reconfigure or pay off bank debt and/or increase borrowing capacity.
2) Get maximum cash – 100% versus debt financing which is at a certain loan to value
3) Obtaining long term financing versus use of short term financing with an alternative source
4) Off balance sheet financing to improve balance sheet ratios.
5) Full lease payment is an expense to the tenant.
6) Obtaining a proper or low lease rate as compared to market lease transactions.
7) Control the property even though sold to an investor.
8) Determine that financing is better than other alternatives
9) Watch potential of new FASB/IASB regulations impacting the financial statements
Investor Considerations:
1) Get good rate of return
2) Get good credit. Be aware of corporate versus franchise credit.
3) Price per foot is reasonable as compared to market.
4) Understand needs of the tenant.
5) Get lease increases per year to protect against inflation.
6) Determine if tenant is in a good location.
7) Watch any landlord expense – should try for absolute net transaction.
8) Review that the tenant remains a good credit during the term of the lease.
9) Determine the ability to exit the transaction if necessary
Investor Advantages:
1) Little to no management
2) 1031 possibilities
3) Getting a good credit investment
4) Use of depreciation
5) Long term investment